Skilled workers have become like gold dust in Europe’s largest economy. At the last count, there were close to 770,000 unfilled vacancies in Germany, about two thirds higher than a decade ago. More than a third of German companies report that they are suffering from a shortage of qualified workers, with accounting skills a particular problem, according to the latest survey from the ifo Institute.
Economy minister Robert Habeck has highlighted the labour deficit as the key constraint on German businesses. ‘We lack hands and minds,’ he said in a recent press conference at which he unveiled a government report estimating that Germany is on track to be short of seven million skilled workers by 2035.
‘This is not a problem unique to Germany’
So what is going wrong? And is there anything German companies can do to head off this challenge?
Shrinking availability
Part of the problem is a shrinking working-age population. ‘This is not a problem unique to Germany, but it will be worse there than in other major European countries in coming years,’ says Andrew Kenningham, chief Europe economist at Capital Economics. ‘Germany’s working-age population is on track to fall by around half a percentage point per year until the late 2020s – a steeper decline than is predicted in France, Italy or Spain over the same period.’
But it is not all doom and gloom. The German government has woken up to the problem and has been rolling out policies to help businesses cope. And there are also a range of steps that German companies can take to reduce the threat.
‘Global competition is high for qualified employees in accounting and finance’
One palliative for German businesses is to step up spending on training. The nation’s apprenticeship schemes – which combine practical in-work training with academic study – were once the envy of the world, ensuring a steady flow of workers with practical skills. Recently, however, companies have been struggling to attract young people to such programmes.
Education minister Bettina Stark-Watzinger has said employers need to take the urgent steps to revive the model, becoming ‘even more active in designing attractive workplaces, and in training and educating their employees’. This is especially the case in areas where the German economy has typically been weakest – such as technology.
Reasons for optimism
Here there are some signs that help is on the way. Microsoft recently said it planned to invest €3.2bn in AI and cloud computing in Germany, helping to train more than 1.2 million people in digital skills. Brad Smith, vice chair and president of the software giant, recently observed that Germany is lagging most other European nations when it comes to AI skills, ranking only 11th on the continent.
Secondly, German companies can become more active in adopting labour-saving and productivity-boosting technologies, including AI. Here, too, there is some cause for optimism. A recent analysis by the International Monetary Fund of AI readiness ranked Germany third globally, behind only the US and Singapore.
German companies can take a greater initiative in poaching skilled workers from overseas
Along with stepping up investment in robotics and automation, being nimble in adopting AI could help blunt the impact of a shrinking working age population. It also has the potential to rekindle enthusiasm among a generation of young Germans, many of whom appear to be falling behind in terms of skills and training. The German government estimates that some 2.6 million people aged between 20 and 30 in Germany have no professional qualifications.
Thirdly, German companies can take a greater initiative in poaching skilled workers from overseas. This is no easy task, argues Kenningham. ‘The pool of unemployed workers in other European nations is not as large as it once was, with the jobless rates having come down in nations like Spain,’ he says. ‘Global competition is high for qualified employees in tech, accounting and finance, and Germany has less of a tradition of bringing in such workers from Asia and elsewhere.’
Government assistance
However, the German government has provided a helping hand recently. ‘The 2023 Skilled Immigration Act makes it easier for non-EU nationals to obtain visas by relaxing rules around recognition of qualifications, minimum salary requirements and designated “bottleneck professions”,’ observes Kenningham.
Of course, the initiative to find applicants still needs to be taken by German companies. This would also take place in the face of mounting political resistance to immigration. The nationalist Alternative for Germany (AfD) party has been gaining ground and recent polls show it as the second most popular party nationally.
The share of the workforce that is 50 or over has risen from 27% to 38%
Finally, German executives may need to consider measures to incentivise older workers to remain in their positions rather than retiring. The share of the workforce that is 50 or over has risen from 27% in 2008 to 38% in 2023. To retain such experienced employees as they near retirement, German companies may need to focus on becoming more amenable to this group’s desire for more flexibility. Once again, the German government has tried to nudge employers and workers in this direction, with the 2017 Flexi Pension Act – though uptake has so far been disappointing.
It would be foolish to deny that German companies face an uphill battle. Investing more in training and technology will not come cheap. Luring skilled immigrants will require German companies to offer globally competitive salaries and conditions. And encouraging native workers to delay retirement demands innovative and potentially costly changes in working conditions. But the drought of workers leaves German executives with little choice.
